India has been the fastest-growing economy in the last few years, despite global geopolitical and economic uncertainties. However, that has largely been driven by the government’s investment push. One area of concern has been that private sector capital expenditure hasn’t grown fast enough.
Persistent global uncertainty is delaying private investment decisions, according to Dharmakirti Joshi, the chief economist at Crisil, the ratings agency majority owned by S&P Global.
S&P expects the private sector to spend around $800-850 billion on capital expenditure over five years. However, the near-term uncertainties will continue to weigh.
“There is still a degree of caution that we are seeing in terms of large private capex. We do think it will come over a period of time. I don’t see it really happening this year; it is probably going to get shifted more to next year,” opined Geeta Chugh, MD, sector lead financial services ratings, South and Southeast Asia at S&P Global Ratings.
S&P Global sees India’s GDP growth in the 2025-26 financial year at 6.5 per cent, although fastest among major economies, still unchanged from the GDP growth in 2024-25.
While past external shocks have caused short-term challenges for India, they have not derailed the country’s long-term growth trajectory, S&P noted. Importantly, it pointed out that India has managed to enhance its growth advantage over developed countries by pursuing economic reforms.
One major challenge India’s economy currently faces is the global geopolitical and economic uncertainty and the hefty 50 per cent tariffs imposed by the US administration on Indian imports.
Global tariffs shocks and how domestic buffers and policy levers can be shaped to provide a cushion will influence India’s economic outlook this year and beyond, opined Crisil’s Joshi.
“The significant shift in the global trade landscape in fiscal 2026 will test India’s economic resilience, particularly due to the direct and indirect effects of imposed tariffs,” he said.
India’s economy, for long, has been driven largely by domestic factors. However, as its exposure to advanced economies through trade and capital flows is increasing, the short-term vulnerability to global economic disruptions is also rising.
Joshi pointed out that in the financial year 2025, India’s exports accounted for 21.2 per cent of its GDP, which is significantly higher than 12.6 per cent, back in fiscal 2002. Similarly, financial flows were 28.5 per cent last year, compared with 8.9 per cent in 2002.
The tariffs imposed by the US administration make Indian goods more expensive and at a competitive disadvantage compared to Asian rivals like Vietnam, Thailand, South Korea and Japan. India and the US are negotiating a trade deal and the talks between the two sides resumed this week. How the talks pan out and eventually what kind of agreement is signed will determine how India’s exports to the US pan out.
However, a thing to consider is that the US economy is expected to slow down; S&P Global sees the US growth slowing to 1.7 per cent in 2025 from 2.8 per cent in 2024. Considering that the US accounted for nearly 20 per cent of India’s goods exports, any US slowdown will impact India’s exports to that country and in turn the economy. The Eurozone, which accounts for 17.3 per cent of India’s exports, is also facing growth challenges and that will also weigh on India’s exports.
There are other risks that also need to be watched out for. While the monsoon has been generally good this year, some states have been adversely impacted due to heavy rains and that could weigh on crop prices, he pointed out. The assessment of the damage is something that will have to be watched out for.
India recently announced a huge revamp of the Goods and Services Tax (GST) regime, which will see GST on a wide range of FMCG products, small cars, two-wheelers etc come down effective September 22. This is expected to give consumption a boost, in turn giving the country’s economy a boost.
But, pass-through of the GST cuts will be important and something to watch out for, said Joshi.
One area where companies have already started passing on the GST cuts is in the automotive sector. Most auto companies have rolled out programmes, where you could book a vehicle now at the lower prices incorporating the GST cuts, and deliveries are scheduled after September 22.
GST cut from 28 per cent to 18 per cent will make cars more affordable and that should drive a lot of replacement as well as new demand, said Puneet Gupta, director, south Asia – automotive sales forecast at S&P Global Mobility. It has raised its industry growth forecast to 8 per cent from 4 per cent.
“We have doubled the growth forecast. India has a young population, who are looking for affordable solutions and with the GST cut, cars will be affordable,” noted Gupta.